China’s Bonds Get a $2.5 Trillion Test Run
Should the country join the Global Agg bond index, as expected, Chinese yields may have much more impact on the world — and vice versa.
China’s soon going to have a lot more say in the world’s bond markets.
Image: Bloomberg Creative Photos
By next spring, Chinese government and policy bank bonds denominated in renminbi could be part of the Bloomberg-Barclays Global Aggregate, the debt-market index with the largest amount of assets under management. Global Agg, as it’s known to traders, represents about $2.5 trillion worth of securities. Macro investors should take notice of Beijing’s move, for at least two reasons.
First, this would mark another milestone in China’s gradual liberalization of its capital account (the money flows in and out of the country). If sustained, this process would herald a big shift in long-term capital allocations around the world. China would be expected to take fourth place in the Global Agg after the U.S., the euro zone and Japan, with a projected index weighting of 5.5 percent. Second, Chinese yields might exert greater influence over the pricing of global long-term interest rates and, in turn, become more sensitive to movements in bond yields abroad.